Global coal phase-out to cost between $200 billion, $2 trillion – study

According to a recent paper in Nature Communications, if China and India decide to phase out coal as fast as needed to reach the Paris climate targets and pay similar compensation, it would cost upwards of $2 trillion.

The researchers, hailing from Chalmers University of Technology in Sweden and the Central European University in Austria, have studied all countries with coal phase-out plans around the world and found that those with the most coal power production and with plans for rapid phase-out have compensation policies in place.

In total, these 23 countries with 16% of the world’s coal power plants have pledged about $209 billion in compensation. This may sound like a lot of money, however, the researchers point out that it equates to roughly 6 gigatons of avoided CO2 emissions and the cost of compensation for coal phase-out per tonne of avoided CO2 emissions ($29-46 per tonne) is well below recent carbon prices in Europe (~$64-80  per tonne).

“So far these ‘just transition’ policies are consistent with, or lower than, the carbon prices within the EU, which means they make sense in terms of climate change. But more funding is likely needed if we want to reach the Paris climate targets,” Jessica Jewell, one of the study’s co-authors, said in a media statement.

This is because achieving the goals of the Paris Climate Agreement will not be possible without the participation of the world’s major coal consumers, China and India, which have more than half of the world’s coal plants, but no phase-out plans currently in place.

The study found that, for China and India to adopt compensation policies similar to those already in place, the estimated compensation amount for both countries would be $2.4 trillion for the 2°C target and $3.2 trillion for the 1.5°C target.

“The estimated compensation for China and India is not only larger in absolute terms but would also be more expensive compared to their economic capacities”, Lola Nacke, co-author of the paper, said.

A big question thus is where such large sums of money would come from. Today about half of all compensation is funded from international sources such as Just Energy Transition Partnerships, which are multi-lateral structures for accelerating the phase-out of fossil fuels. These intergovernmental partnerships coordinate financial resources and technical assistance from countries in the Global North to a recipient country to help it in this regard. They are currently in place in Vietnam, Indonesia and South Africa.

International finance might also be needed to support future coal phase-out compensation in major coal-consuming countries. The researchers note that the estimated amounts of compensation for China and India alone are comparable to the entire international climate finance pledged in Paris and larger than current development aid to these countries.

“Discussions about the cost of climate change mitigation often focus on investments in renewable energy technologies – but we also see it’s essential to address social implications of fossil fuel decline to enable rapid transitions”, Nacke said.